Panama Papers: Narendra Modi grabs another chance to go after cronies

The familiar taunt Narendra Modi faces from his critics is about the non-arrival of “achche din.” He still has two more years (the last year being too close to the elections) to deliver on that promise, but one thing he can certainly lay claim to is the arrival of “bure din” (bad days) for crooks, crony capitalists and black money holders.

At the very least, he can claim he acted when the UPA didn’t, having constituted a Special Investigation Team (SIT) as soon as he took over in May 2014. Yesterday (4 April) he set up a multi-agency probe team within hours of The Indian Express investigative report on the Panama Papers, which disclosed that over 500 Indians had unexplained accounts in Panama.

These accounts, including some involving offshore companies, foundations and trusts, were unveiled when 11 million documents were recovered from Mossack Fonseca, a law firm that helps companies to be set up in that tax haven. (Read here and here.)

Prime Minister Narendra Modi. Reuters

The names that fell out of Fonseca’s closet include Amitabh Bachchan, Aishwarya Rai, Gautam Adani’s elder brother Vinod, DLF’s KP Singh, and Sameer Gehlaut of IndiaBulls, among others. It is still to be proven that these names had done anything illegal, but the mere fact that Modi has acted fast shows good faith at least. These names came to light after an eight-month investigation by Indian Express journalists in collaboration with the International Consortium of Investigative Journalists (ICIJ).

Unusually for a supposedly business-friendly politician, Modi has gone out of his way to distance himself and his government from cronies, a fact acknowledged not only by his non-political critics, but also by businessmen who are otherwise hot on Modi. Writing about a year ago, columnist Swaminathan Anklesaria Aiyar noted that Modi’s “biggest achievement in his first year in office is, arguably, a huge reduction in big corruption (involving top politicians and industrialists).” He quoted an earlier Economic Times report that quoted anonymous businessmen expressing disappointment over their “neglect” and “lack of access.”

In the first full budget of the NDA in 2015, Arun Jaitley brought in a draconian anti-black money law with a 60 percent upfront penal tax, which went up to 90 percent after the window for compliance closed last September. If anything comes of the Panama Papers and the new multi-agency team, it will be covered by the more stringent and confiscatory regime of the Black Money (Undisclosed Foreign Income and Assets) and Imposition of Tax Act, 2015. The compliance window didn't get much by way of revenue, but it sent the right message on the seriousness with with which the Modi government views the issue.

With a double-pronged attack – one by the SIT that is being supervised by the Supreme Court, and the other by a multi-agency probe that is directly being monitored by the PMO – there is little doubt that “bure din” have started descending on crony capitalists.

Not only that, with nationalised banks being asked by the Reserve Bank to go after defaulters, and Modi backing this pursuit politically, there is a double-pincer attack on crony capitalists and black money holders – with government and SIT on one side, and with RBI and government on the other.

If Modi persists with this double-pincer attack, his lasting legacy will be the clean-up of India’s crooked system of crony capitalism or socialism – at least at the central level. The licence-permit-crony raj started by the Congress party in the 1960s and 1970s and which peaked in the UPA years of 2004-14, is coming crashing down.

Yesterday (4 April), the finance ministry was quick off the block to explain what it was doing to go after the cronies already exposed.

This is what the ministry said: “Based on the investigative journalism of ICIJ in 2013 in which the links of 700 Indian persons were shown to have business connection with offshore entities, the Revenue Department, Ministry of Finance, government of India has been able to identify 434 persons out of them as Indian residents. 184 persons out of these have also admitted their relationship with such offshore entities/transactions. Although, in the previous report of ICIJ, information relating to the financial transactions/bank accounts was not available, the government authorities have detected credit in the undisclosed foreign accounts of such Indian persons in excess of Rs 2,000 crore. 52 prosecution complaints under the provision of Income-Tax Act have been filed against offenders so far.”

On the HSBC accounts list, the ministry said the following: “In response to the information received in 2011 from government of France, relating to the bank accounts of 628 Indian persons in HSBC, Switzerland, a lot of progress has been made in the investigation by the Department. Out of the list, 569 persons have been traced. However, in the information received, details of HSBC amounts were shown against 339 persons only. Out of 628, 214 were found not actionable on account of no balance or being non-residents or being non-traceable. Out of the remaining cases, assessments have been completed in 390 cases in which undisclosed income of Rs 5,018 crore and tax demand of Rs 4,584 crore has been raised. Also the concealment penalty of Rs 1,213 crore has been levied in 157 cases. Also 154 prosecution complaints have been filed in HSBC cases. Based on the prosecution complaints of predicate offences, ED has also initiated investigation in 23 cases of HSBC and 20 cases of ICIJ expose of 2013.”

Clearly, some of the money held in tax havens is being traced and brought back, even though the sums involved are not earth-shattering.

The fight against black money hoards abroad is a long term one, needing evidence and consistent efforts to nail the guilty in foreign jurisdictions and bring the money home.

The problem for the Modi government is that this money will take years to identify and bring back, and the government has only three years left to show results. It is ensuring “bure din” for at least some of the crooks, but this may not be enough to ensure “achche din” for the rest of India. Reason: chasing black money has a downside: when the rich and powerful are on the run, how likely is it that they will eagerly invest in India in the short run?

It would have been easier for Modi to turn a blind eye to corruption and focus on reviving business sentiment and growth; that he has chosen the harder option of going after crooks does him credit. He may yet end up paying for it with lower growth, especially at a time when the rest of the world is in decline and fall mode.